Don’t Assume Consolidating Student Loans is Always the Best Option
Many students and college graduates with student loan debt are under the impression that consolidating student loans will save them money, lower their interest rates and make their student debt easier to manage. While this may be the case a majority of the time, it’s certainly not true 100% of the time. There are several things that every student/grad must consider before deciding to consolidate.
According to the College Board (collegeboard.com), approximately 60% of college students finish school with some sort of student debt, including student loans, student credit cards, or other types of debt. Additionally, the average amount of student debt upon graduation was $22,700 per student as of 2007. That’s an 18% increase from 2001. So there’s no reasons to think that this trend won’t continue in the coming years.
Due to the rising costs of attending college, students are turning to student loan consolidation after they complete their schooling. It’s definitely an option worth looking into, but you should never sign the dotted line without conducting proper due diligence first.
Consolidating student loans may lower your payments and make it easier to manage your debt, but it also may end up costing you more in interest charges over the life of the loan. This isn’t true in every case, but it’s up to you to compare interest rates between your current student loans and the consolidation rates. Many consolidation loans work by just extending your repayment terms, which essentially just lowers your monthly payments while keeping your interest rates about the same. In this case, you would end up paying much more in interest charges over the life of the consolidation loan than you would if you were not to consolidate.
Another potential downside of consolidating student loans is that you would – in some cases – lose the ability to enter deferment if you were to lose your job, go back to school or are facing some sort of financial hardship. Look closely at the student loan consolidation’s fine print to see how the lender would handle future financial hardships.
Loan consolidation can be a great idea if you flat-out can’t afford the payments otherwise. If this is the case, you may want to first see if you can file for deferment due to financial hardships. If denied deferment, you should strongly consider consolidating your student debt to make your payments more affordable.
Many lenders will offer incentives when you consolidate, such as offering an interest rate discount for those people who make timely payments for a 12 months. Inspect the student loan consolidation contract for information about incentives, because they can really pay off in the long run. What it really comes down to is saving money, so with a little due diligence you’ll be able to make an informed decision on whether or not student loan consolidation is right for you.
Consolidating student loans is a way to reduce student loan payments, lower interest rates and to make student debt easier to manage. Here at Consolidating Student Loans, you'll find a wealth of information related to students loans and consolidation. Thanks for stopping by, and make sure to grab our RSS feed to stay up-to-date with the latest student loan news.
